A Dual Track

Two very disappointing sets of figures were released last week.

One: the anemic 3.4% GDP growth experienced by the Philippines in the second quarter of the year. That places growth in the first half at 4%. Economic managers have had to revise downwards their full-year projection to 4% from the targeted 7-8% (it would require growth of 10% in the second half of the year for the target to be reached, and not even the budget department’s assumption of 5% seems likely at this point).

Two: the abysmal jobs market in the US which saw no new net jobs created in August as many private firms became spooked by events in Europe and the US credit downgrade. The fact that high unemployment is expected to persist until 2015-16, perhaps even to 2016-17 (with many states coping with the end of stimulus by laying-off workers) has led many to conclude that the US is teetering on the brink of a double dip recession.

Bracing for the harsh winds from a US downturn, Sen Frank Drilon has called on the government to step up its infrastructure spending. Amando Doronila uses the findings of Credit Suisse which downgraded its growth prospects in the region which is expected to suffer “more than most” and cast doubts on the Philippines because it doubted whether

(T)he planned PPP (public-private partnership) infrastructure projects that many were bullish about were likely to get off the ground in a hurry.

In fact, the first couple of projects are scheduled to be bidded out at the end of the year, 18 months after the SONA in which it was announced. That means actual investments will not flow until well into the next year.

Economist Solita Monsod in her weekend column chastised our economic managers for not heeding the official early warning signs by accelerating public construction expenditure. She likened it to economic sabotage when she concluded

Public construction contracted by 23 percent in the third quarter of 2010 and 14 percent in the fourth quarter. Okay, that’s the price for trying to tighten procedures. But decreasing by 38 percent in the first quarter of 2011? And 51 percent in the second quarter?
Prevent plunder? Maybe. But there is economic sabotage in the process. What a choice Filipinos are faced with: between ill-intentioned plunderers and well-intentioned saboteurs.

Amando Doronila had more harsh words in today’s op-ed piece

The straight path to governance sainthood under the Aquino administration’s mantra, “without corruption there’s no poor,” is littered with the derelicts of pious slogans as well as the detritus of incompetent economic management. These derelicts cannot make up for the big deficit in economic performance.

Much like his American counterpart whose followers have become disenchanted with the meager results of his lofty campaign rhetoric, PNoy could soon find the public’s receptiveness to his slogans waning with each passing day.

After experimenting for a year with his idealistic Daang Matuwid will hard-nosed pragmatism be resurrected? A dual track is needed in which the administration pursues its good governance agenda in a way that does not hamper economic growth and development.

This is perhaps what the purists in his camp failed to consider, that the path to development is not a single lane, and that the two agendas can run side-by-side.

Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.

  • I reflect back on a comment that an American economist made in late 2009 as the economy struggled back from the brink of global disaster. “This is going to be the mother of all jobless recoveries.”

    If he could see that back then, why is it so surprising to you economic wizards that the situation is any different than it is.

    I don’t see how you can rip trillions of dollars of wealth out of the US economy, which anchors the global economy, and expect recovery in two years or three or five.

    And I suppose it all depends on what the tint of your glasses are. I look at 3.4% growth and say, that’s better than most. You call it a “crisis” and blame the Philippine president for it. I’m not sure what tint your glasses are, but they seem politically smudged to me.

    • uP nNN grRd

      JoeAm: it indeed was PresiNoy’s decision to clamp down on government spending several quarters ago — even Bert was applauding PresiNoy effort to checK, double-check and triplecheck the contracts and projects scheduled by the guLO administration. “No spending” to mean n kurakot by guLO BFF’s.

      The action became the Keynesian “throwing out the baby with the bathwater”, a slump that’s quite a price to pay for, well, throwing out the baby with the bathwater.

      • Joe America

        Lots of babies around here, figuratively speaking, of course . . .

    • uP nNn grRd

      Too bad PresiNoy didn’t find his “Elliot Ness” in the first months. Maybe had PresiNonoy had more faith that his JusticeDepartment / Comm-Audits would find and successfull prosecute KURAKOT, PresiNoy won’t be sp scared of guLO BFF’s still getting rich even during his administration.

    • I was alluding to the tempest in the global economy when using the word “crisis” (I was not referring to the domestic economy which remains in an ok position, simply because of fortuitous events, eg the pent-up demand for private capital expenditure in the first quarter and the early rains in the second). Locally, the gov’t would do well not to exacerbate the situation as per what occurred in the first half of this year. Monsod was keen to point out that growth would have been 4.9% had the gov’t not withheld public construction in the first half of this year. It was her contention that the last half of last year would have been sufficient to put in place whatever audit and evaluation regime was deemed necessary to ensure good governance.

      Had that been the case, the gov’t would still be within striking distance of achieving its growth target for the full year. As it is, with 3.4% GDP growth (0% per capita GDP), the country is in a precarious position of actually succumbing to the effects of the global crisis mark II when it hits our shores in a few months’ time. That is the analysis. Now does it seem politically tainted? I think not. I am not affiliated with any particular political party. If ever, I ought to be biased in favor of the administration, having endorsed candidate PNoy at the last election.

      Having disclosed all my prior history (and that of my family’s) with the Aquinos (with PNoy’s father during Martial Law and with his mother under her presidency) in previous posts, what my analysis demonstrates is that this personal history has not clouded my perception and apprehension of events. Rather, I think it is those who misguidedly want to avoid dealing with the evidence/outcome of prior policy decisions for ideological reasons that are applying their own filter to reality.

    • J_ag8

      Really Joe A.  A country like the Philippines where almost everyone is concerned with putting food on the table as opposed to the U.S. where maintaining living standards could make or break politicians.

      The present Philippine government like all the others before it is no different in its policy of maintaining the status quo. To make a difference in people lives the Philippines will have to grow in real terms at 8-10% annauly for one to two generations. So far the Philippine economy under the new government has not done anything different to break free of its past and present growth trend.

      It has become comfortable with sending its labor overseas to build other economies. Generally in the Philippines we do not build stuff in the country we consume it… (Import)  On the Expenditure side we need to be more an investment led economy rather than a consumer led country.

      You should read up on the history of the First Treasury Secretary of the U.S. Alexander Hamilton. The Chinese followed his example by using their own national currency and excluded all others..

      • Joe America

        Yes, the Philippines needs big growth to catch up. Makes sense. Yes, I should read up about Hamilton . . . but won’t . . . haha

  • Nik

    Oh, I guess some do take Doronila’s histrionic rants seriously.

    Much like how some analysts questioned whether artificially buoyed growth rates during the GMA administration actually helped address the poverty situation in the country, I wonder if the short-term slow down in GDP growth numbers is damaging the country as well.

    • Doronila was quoting from two sources: Credit Suisse and the UP School of Economics. Now I haven’t been a big fan of Doronila in the past, but these two sources, I believe can be held up to scrutiny.

      • Nik

        Those are two reputable sources, within reason. As you mentioned below though, don’t want to get too far afield in discussing sources, though I would be curious to see whether they were outliers in terms of analysis, or represented dominant thought.

        On the growth issue, I still am of the mind that growth is less important than the distribution of growth. We saw during the GMA administration that while growth was fairly buoyant, on-the-ground situation was improved and foreign investment was kind of blah. Could the approach of smoothing out structural inefficiencies and focusing on creating a more welcoming business environment, while resulting in short term difficulties, result in more positive and fruitful growth numbers in the future?

        Though, I do see your point about balancing the two agendas.

  • Bert

    Who are Monsod and Doronilla but meek lambs during the dark days of the previous administration now disparaging Noynoy’s ‘daang matuwid’ as if it’s the scourge and crookedness the magic bullet to them.

    Now, this article of Doy’s betrayed his myopic eyesight, where there are multi-tracked along the path being treaded by the present administration Doy can only see a single track, hehehehe.

    • Bert, I just love the way you avoid addressing the issue by attacking the source of the argument and not the argument itself.

      The credit rating agencies don’t really care about politics. They are only concerned with performance. So far, the admin hasn’t been able to demonstrate that it can walk and chew gum. Why else would Frank Drillon be calling on it to correct itself (from being a one trick pony)?

      The thing is, unless the gov’t can shore up its economic credentials, it won’t have the political capital to continue its agenda for good governance. It will lose all credibility. That is why it needs to open up a dual track.

      • manuelbuencamino

        Doy,

        “The credit rating agencies don’t really care about politics. They are only concerned with performance.”

        But S&P downgraded the US credit rating because of the current political situation in the US

        • Thanks for pointing that out. I meant to say the credit rating agencies aren’t politically motivated in developing their assessments (as some alluded to the political leanings of some commentators cited in the piece). Of course when politics affects the running of the economy, they would be concerned about it, which is what happened with S&P’s case.

      • justwondering

        “those credit agencies don’t really care about politics”,

        they only care about how much investors make at the end based on how they provide those assessments. or did i just got too involved in the docu movie Inside Job ?

        growth numbers during GMA’s term were good but did it provide her the political capital to continue her agenda of pushing her prescription of economic pills?

        so yeah, im wearing yellow tainted glasses at the moment to disagree that our economy is mismanaged to say that we are on a downward spiral..

        • GMA’s problem was legitimacy (or lack of it). Regardless of what she did, it hobbled her capacity to govern. PNoy’s is the opposite case. He’s got legitimacy in spades, but that could erode over time if his administration fails to show competence in managing the economy.

        • “The credit rating agencies don’t really care about politics. They are only concerned with performance.”
          Oh, yeah. Performance, meaning deposits. Those Swiss bankers really care about secret deposit accounts by political plunderers and ravagers of nation’s wealth they would rather encourage spending, good or bad, preferably bad because they will not get anything from clean politicians.

          Bert or Roberto the same